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3 Common Stock Investment Mistakes

17 Nov, 2021

3 Common Stock Investment Mistakes
Easily avoidable stock investment blunders for beginners.

Make no mistake... Stocks seem like a very tempting way for beginners to earn good money in a short period of time. But in reality, investing and trading requires time, effort, patience and knowledge. It can be done by anyone as long as you have these virtues and the attitude of a student.

If you are okay with The Stock Market Trading Dictionary, it's great! If you make learning a practice and continue to stay curious about everything under the umbrella of stocks and investments, you are a winner!

You can avoid grave yet simple investment mistakes starting today. Let's find out about those 3 common stock investment mistakes that beginners commit unknowingly.

Stock Investment Mistake #1: All Eggs In The Same Basket

Investing at an early age is the mature thing to do. As long as you know what you're doing, understand the risks and stay disciplined.

But one of the keys to intelligent investing is diversification.

A diverse investment portfolio acts as shock absorbers for your financial plans, especially for beginners.

For example, if you have 20 different stocks. Say 10 of those are real estate companies and 10 are focused on consumer non-durables, you're not that diversified. A sudden drop in Pepsi or Coke due to Christiano Ronaldo 'switching a bottle with water', could change the fortunes of half your portfolio! Similarly with stocks in real estate due to COVID-19. Most beginners make the mistake of not investing in different segments.

How to avoid this common stock investment mistake?

Aim to invest in different countries and a variety of industries. Consider holding some Indian stocks too. Considering those Indian companies are big with foreign operations.

Stock Investment Mistake #2: No Plan 'A'.

In March, when the stock markets crashed due to the lockdown and pandemic, many investors panicked and sold their stocks to minimize their losses. While this seemed like the best thing to do, it was not an informed decision but an emotional reaction to a stressful situation.

Never let your emotions get the best of you. If fear is bad, then euphoria can also be dangerous. Research reveals that the average person changes about a quarter of their stock portfolio in a year. While the over-enthusiastic investor ends up changing their entire portfolio twice a year. As a result they receive the lowest return on share purchases.

Seasoned investors take the trouble to always have a plan in place. While beginners replace their plan with prayer.

It's simple. No plan, no goal. This will also result in reckless losses.

How to avoid this beginner's mistake?

No guesswork. Take the trouble and the time out to create a strategy which takes your personal plans, preferences and risks into account. Check the financial data of every company you plan on investing in and make an informed decision as opposed to blind guesses.

Stock Investment Mistake #3: Homework Not Done

If you can't explain something to a 7 year old, you didn't understand it yourself.

Don't make the common beginner mistake of buying investments you don't understand.

Before you invest in any company make sure you know how it makes money. Take McDonalds for example. This might be something you already know but it is always a good example of how a company is disguised. McDonalds sells fries and burgers. But it actually ends up making more money on the land. McDonalds owns real estate all over the world.

It's easy to avoid this common investment mistake with Top 5 Dos and Don'ts of Stock Market Investment

If you are interested in buying the stocks of a company, make sure you read more about it. You need to arm yourself with adequate information about each company before you decide on it.

Apart from these 3 common stock investment mistakes, beginner investors need to have two accounts - a demat and a trading account. If you have decided on going ahead with investing in stocks, Sharepa is currently offering free account opening along with free brokerage. This will only be valid for the first month.

Learning is an important aspect of trading. Therefore, apart from easy trading, you can make the most of Sharepa - Fastest stock trading platform in India for information on trading and demat accounts, stock market, mutual funds, IPOs and F&O trading as well.

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